The Science Behind Reinventing Fire: Buildings

America’s 120 million buildings consume a prodigious amount of energy—42 percent of the nation’s primary energy, 72 percent of its electricity, and 34 percent of its directly used natural gas. They use more energy than any country except China and the whole United States. But the U.S. buildings sector presents juicy opportunities to profit from new business initiatives, drive innovation, and save money—and to realize societal benefits like creating jobs, improving public health and environmental stewardship, and strengthening national security.

The functions for which buildings use energy are many, varied, but basically quite simple. Buildings need to keep us comfortable, illuminate our tasks, and power our gadgets while supporting our health and lifestyles. To minimize waste, we don’t need rocket scientists or brain surgeons. We just need to focus on a few key energy end-uses. Engineers, architects, and contractors empowered by straightforward business practices and policies can wring far more work—and profit—out of those uses’ energy.

So what kinds of energy savings can we really capture in our homes, schools, office towers, and millions of other buildings?

Yet installation of straightforward and available technologies has so consistently lagged growth in floorspace and equipment that never in our history has U.S. building energy use trended downwards. Just leveling energy use from 2010 to 2050 would be unprecedented. While the nation’s track record for building energy efficiency has been mixed, though, some states and regions have achieved sustained success. To capture that opportunity nationwide simply means investing in energy efficiency as consistently and robustly as some of the top-performing regions already are.

Three tools, many benefits

U.S. companies are starting to recognize this opportunity by slashing their own energy use or selling energy-saving products. Impressive gains can be realized today with conventional approaches and current technologies. Going forward, rapidly emerging technologies will replenish the “efficiency resource” faster than it’s exhausted, and at similar or lower cost. History demonstrates that efficiency technologies will continue to improve until we approach the best that physics allows—a level so frugal that onsite renewable supply can inexpensively suffice.

Energy savings are likely to rise above those from smarter technology alone, because we’re also becoming better enabled than ever before to change how buildings’ occupants use building services. These behavioral changes are not about discomfort, privation, or curtailment, but instead about increasing people’s access to information about how much energy they’re using and how much it’s being wasted, so they have the option to make smarter choices.

But the overall story turns out to be even more compelling than the energy savings alone would indicate. That’s because the same upgrades that save energy also bring other valuable benefits. Where measured, these extra benefits have almost always been more valuable than the saved energy—even by tenfold or more. Examples include saved installation and maintenance costs, higher worker productivity, better recruitment and retention of employees, increased retail sales, faster learning in schools, and faster healing in hospitals.

Vaulting the barriers

With such strong business logic, why has modern energy efficiency’s adoption across the building sector been so distressingly slow?

After all, building owners and company executives are savvy business leaders. Equally smart and innovative entrepreneurs and companies are already aggressively marketing the technologies, services, and designs needed to make the nation’s buildings more efficient. But the obstacles are as real as the opportunities.

First, any single individual or company can only reap a tiny fraction of these savings—so tiny that in many cases, the effort and hassle may not seem justified. And frankly, buildings’ energy costs and their reduction are low priorities for most people.

There are other barriers too. Few firms or individuals track their energy use as a line item for which profit centers are accountable. Often individuals and companies can’t directly and immediately reap the savings from their investments, because different parties may own the property than pay the energy bills. Also, capital for energy efficiency retrofits has been costly, mainly because deals are small and transaction costs relatively large.

Many structural barriers hinder widespread energy efficiency upgrades. Incentives in real-estate value chains are systematically perverse: for example, we reward architects and engineers for what they spend, not what they save. Altogether there’s a vast chasm between efficiency’s enormous societal benefits and its relatively small and diffuse rewards. Or as economists would say, there’s a market failure.

Transforming America’s building sector will demand national attention and action, an intensive ramp-up of investment and innovation, and broadly targeted policy shifts to help markets work better. Slight changes to business-as-usual will not suffice. The agenda for building owners and investors, building uses, service providers, and governments and policymakers is long and detailed.

There is no one-size-fits-all approach. Experimentation, reorganization, reprioritization, and in some cases complete transformation will be required to grasp that $1.4-trillion-net prize. But whatever the route to that destination, six broad elements are critical to speeding energy efficiency gains in U.S. buildings:

unleash entrepreneurial thinking,

make energy use more transparent,

provide easy-to-access, low-cost financing,

train and educate,

upgrade to next-generation building efficiency policies, and

align incentives between utilities and customers.

Progress on these six needs requires targeted actions by specific players. It requires near¬ly every American to make different choices. It requires money. It requires collabora¬tion between business leaders and policymakers. It requires a long view and dogged persis¬tence. But the prize justifies the effort, and goes far beyond just the $1.4-trillion savings.

The wider benefits

Superefficient buildings won’t just use far less energy, freeing up electricity for electrified autos and natural gas for industry and flexible power production; they’re also the key to supplying more, better, cheaper, safer energy to all sectors. Buildings are a future hub of energy storage, energy production, and energy markets. Intelligent buildings can make and perhaps store electricity. Their physical characteristics can shift based on weather and on wider energy needs and offers. Efficient, smart buildings can both learn and signal when to buy or sell energy and its services. Thus efficient buildings can become the foundation of the vastly different U.S. energy system that’s already starting to be built.

Embarking on this energy adventure is not just about enhancing the bottom lines of our nation’s businesses and households; it’s about the long future we and our children will compose and inhabit, and the kind of nation and world we want to live in. Energy efficiency is a powerful investment in creating the world you want.

The same upgrades that save energy also bring other valuable benefits, including better employee productivity and retention, increased retail sales and higher rents. LEARN MORE »

There are organizations and individuals who are using the principles of Reinventing Fire to make money and gain durable advantage in their industry.

Buildings: Malkin Holdings and the Empire State Building

The visionary thinking of Malkin Holdings, owner of the Empire State Building, took a planned capital improvement renovation to a new level by asking a team of experts including Rocky Mountain Institute to recommend sustainability measures that would help them invest intelligently.